SC on Authorised Signatory Liability Under NI Act

By Team @ Mahendra Bhavsar & Co.
Reviewed by: Mahendra Bhavsar & Co. Legal Team

Quick Answer

In K. Ranganayakulu v. State of Telangana & Others, decided on 12 May 2026, the Supreme Court considered whether a person who signed a cheque as Treasurer of an NGO could be convicted under Section 138 of the Negotiable Instruments Act, 1881. The Court upheld the conviction and held that, in the facts of the case, the appellant was the person responsible for the rights and liabilities arising under the Memorandum of Understanding and effectively functioned as the drawer of the cheque on behalf of the NGO. However, the Court modified the sentence by substituting imprisonment with payment of a fine, subject to default consequences.

Why This Judgment Matters

Cheque dishonour cases frequently involve companies, societies, NGOs and other entities where cheques are signed by authorised representatives rather than owners or directors personally.

A recurring legal question is whether the person who physically signs the cheque can be held criminally liable when the cheque is dishonoured, particularly when the signatory argues that he was merely acting on behalf of an organisation.

This judgment is significant because the Supreme Court closely examined the contractual arrangement between the parties and the role assigned to the signatory. Rather than focusing only on the designation held by the appellant, the Court looked at the responsibilities entrusted to him under the governing agreement. The ruling highlights that the actual role performed by the signatory may become relevant when determining liability in cheque dishonour proceedings.

Brief Facts

The dispute arose from a Memorandum of Understanding dated 30 July 2009 relating to the collection of electricity bill payments through an organisation known as TIMES. The appellant had signed the MOU as Treasurer of TIMES. Under the arrangement, TIMES was required to collect electricity bill payments and remit the collections to the electricity distribution company through cheque or RTGS transactions.

Certain clauses of the MOU assigned responsibilities to TIMES in relation to remittance of collections, financial losses, fraud, misappropriation and operational performance. The appellant signed the MOU on behalf of TIMES and also signed the cheque that later became the subject matter of proceedings under Section 138 of the Negotiable Instruments Act.

The appellant argued before the Supreme Court that he was not the drawer of the cheque and merely acted as an authorised signatory. According to him, an authorised signatory signing on behalf of an organisation could not automatically be treated as the drawer for the purpose of criminal liability. The High Court had already convicted him and imposed imprisonment and fine, leading to the present appeal before the Supreme Court.

Key Legal Issue

The principal issue before the Supreme Court was:

Can a person who signs a cheque as an authorised signatory or Treasurer of an NGO avoid liability under Section 138 of the Negotiable Instruments Act on the ground that he is not personally the drawer of the cheque?

What the Court Held

The Court Examined the MOU

The Supreme Court analysed the Memorandum of Understanding between the parties. It noted that the appellant had signed the MOU as Treasurer of TIMES and that the agreement assigned responsibility for remittance of collections and related obligations through the mechanism controlled by the appellant.

Responsibility Was Central to the Decision

The Court observed that although the appellant was not the owner or Chairman of the NGO, the MOU did not cast the relevant responsibilities upon the Chairman. According to the Court, the contractual documents recognised the appellant as the person responsible for carrying out the obligations arising from the arrangement.

Effective Drawer of the Cheque

The Court reasoned that where the organisation had authorised the appellant to sign negotiable instruments and make payments under the MOU, he became the person responsible for the consequences arising from those transactions. On the facts before it, the Court concluded that the appellant effectively became the drawer of the cheque on behalf of TIMES because the documents did not identify any other person responsible for those obligations.

Conviction Upheld, Sentence Modified

While refusing to interfere with the conviction, the Court considered the appellant’s position as Treasurer of the society and modified the sentence. Instead of the imprisonment imposed by the High Court, the Court directed payment of a fine of ₹1.5 crore within two months. In default, the appellant would undergo rigorous imprisonment for one year.

Practical Takeaways

• Authorised signatory status alone may not determine liability.
• Courts may examine contractual documents to identify who was responsible for the transaction.
• The actual role assigned under an agreement can become relevant.
• Persons authorised to issue cheques should understand the responsibilities attached to that authority.
• NGOs and organisations should clearly define financial responsibilities in their governing documents.
• Liability questions may depend on the specific terms of the arrangement involved.

What the Judgment Does Not Decide

• Whether every authorised signatory is automatically liable under Section 138.
• The liability of other office-bearers of TIMES.
• Broader principles beyond the facts of the specific MOU examined by the Court.
• Any issue relating to civil recovery outside the proceedings before the Court.
• Any legal consequence not discussed in the judgment.

Short Ratio

Where an NGO authorised its Treasurer to execute the governing MOU, sign negotiable instruments and undertake payment obligations, the Supreme Court held that the signatory could be treated as the responsible drawer of the cheque for purposes of Section 138 proceedings on the facts of that case.